Last month, Senator Bernie Sanders, I-Vt., tweeted about a new report he had requested from the Congressional Budget Office. The report included a chart illustrating the shockingly low amount of wealth held by the poorest half of American households compared to everyone else.
The obscene level of income and wealth inequality in America is a deeply moral issue that we cannot continue to ignore or sweep under the rug. A society cannot sustain itself when so few have so much while so many have so little. https://t.co/9kkKyJV264
— Bernie Sanders (@SenSanders) September 28, 2022
In fact, the wealth of the poorest 50% was so low that it is barely visible on the graph. Furthermore, it has remained modest since 1989 — even as the net worth of the richest 10% of Americans has increased by more than tripling.
But the CBO report only provided those numbers until 2019. What has happened since then, during the pandemic years? Surely the situation must be even more dire today, after the last few years of high inflation. Just listen to what the Washington Post said in September after the Federal Reserve’s latest big interest rate hike:
Fed Chair Jerome H. Powell said more hikes are likely — and will hurt, slowing growth and weakening the job market. Unfortunately, there is no other good option.
Inflation must be stopped. Powell emphasized that Americans are already suffering from rising prices, and the low-income has been hardest hit.
So let’s take a look at this chart from the Fed, which only shows the net worth of the poorest 50% of households and runs from 1989 to Q2 2022:
Surprisingly, as measured by this metric, the last few years have not been an economic disaster for the poorest 50% of American families. In fact, they were, without a doubt, the best moment during the last 30 years. This is not to say that America’s poorest people are living in the clover – they are not. But this way is a clear improvement over the past: The net worth of the poorest 50% has doubled since the first quarter of 2020 and is now much higher than ever before in US history.
The story the graphic tells is straightforward and, until recently, quite grim. The US economy is twice the size it was in 1989, so you would expect the net worth of the poorest 50% to gradually increase during that time until it doubles as well.
That is not what happened. At the beginning, in 1989, the combined net worth of the poorest 50% was $1.7 trillion in current dollars. It slowly rose during Bill Clinton’s administration to $2.3 trillion in today’s money.
But nothing came of it for most of George W. Bush’s presidency.
Then, during the Great Recession caused by the implosion of the housing bubble, the net worth of the poorest 50% plummeted along with home prices. It then slowly backtracked through the first quarter of 2020. It has since risen skyward and is now above $4 trillion. (The Fed is measuring this a little differently than the CBO, but the general direction is the same in both data sets.)
The improvement in the financial situation of Americans also appears in other data. In 2013, only 50% of Americans reported that they could reach $400 to cover an emergency expense, like fixing a broken down car. Now 68% do (although this number is not adjusted for inflation, so $400 today is not the same as it was in 2013).
So why and how did this happen? And what does this mean?
First, wages have not been decimated in real terms by inflation. That is, even though prices have risen, wages, for the most part, have kept pace. The average real wage rose sharply at the beginning of the pandemic; it has since dropped sharply and is now almost exactly the same as during the first quarter of 2020. (The increase wasn’t as significant as it sounds – it was in part due to the large increase in lower-wage workers who lost their jobs earlier in the year. pandemic. Therefore, the decrease in the average salary, as unemployment has fallen, is also not as significant.)
Perhaps half of the increase in wealth is due to an increase in real estate – thanks to both rising house prices and inflation, driving down the value of fixed-rate mortgages. The federal government has also provided massive financial support to the poorest 50% through the 2020 CARES Act, expanded unemployment benefits and the 2021 Children’s Tax Credit, and more. Coupled with low unemployment and increased worker leverage, this is the biggest explanation.
Thus, we have a tale of two competing stories.
According to the Washington Post and many other media outlets, “low-income people have been the hardest hit” by recent inflation, and we must slow the economy (and lower wages and increase unemployment) to their benefit.
According to the real numbers, these are good times for many, many Americans in the bottom 50 percent. That doesn’t mean millions aren’t struggling, but the financial outlook for most was even worse in the past in a world of lower inflation, a situation that hasn’t aroused the warm concern of the corporate media. What we should focus on now is keeping the sequence, not forcing the workforce into submission.
What happens next – and whether the modest increase in financial security that hit the bottom 50% over the past two years endures – will largely depend on what story we believe. As of now, the people at the top of US politics are going for what is not based on real numbers.
Update: October 21, 2022, 5pm ET
This story has been updated to include real estate as one of the factors in increasing the wealth of the poorest 50%.